U.S. EDUCATIONAL ENDOWMENTS AND FOUNDATIONS REPORT AVERAGE RETURN OF 9.7% IN FISCAL YEAR 2005
Benchmark Leaders report returns of 13.7% and 11.2% according to 2006 Commonfund Benchmarks Study®; Alternative Strategies Allocations rise for Fifth Consecutive Year; Average Spending Rate Declines to 4.6%
WILTON, CT, January 12, 2006 – U.S. educational endowments showed respectable returns last year according to the fifth annual Commonfund Benchmarks Study® of 729 private college and university endowments, public educational endowments, independent school endowments, and private foundations in support of education. Educational endowments and foundations reported average annual total returns (net of fees) of 9.7% in FY 2005. This compares with reported average annual total returns of 14.7% for FY 2004, 3.1% for FY 2003, -6.0% in FY 2002, -3.0% in FY 2001 and 13.2% in FY 2000. Benchmark Leaders in the Top Decile and Top Quartile reported returns in excess of 13.7% and 11.2% respectively. Public and private institutions reported average returns of 10.4% and 10% respectively. Total 729 CBS institutions reported average three and five year returns of 9.6% and 3.5% respectively, with larger institutions (assets over $1 billion) reporting significantly higher three and five year returns (11.6% and 5.1%) than the smallest institutions with under $10 million in assets (9.5% and 3.3%).
“Endowments’ respectable returns in a challenging, low-growth environment this past year demonstrate sound investment management compared with the relative outperformance in FY 2004 and the three difficult years of FY 2001-2003. Most endowments and foundations are using alternative investments to a greater extent, as well as active asset allocation, diversification and risk management to maximize both returns and intergenerational equity, particularly the Benchmark Leaders,” said John S. Griswold, Executive Director, Commonfund Institute. “This year’s study shows that Benchmarks Leaders achieved significantly higher returns by increasing allocations to alternative strategies and reducing allocations to domestic equity in the past year. This indicates institutions’ greater need for special expertise in due diligence, risk management and proper diversification of an alternatives portfolio.”
Participating institutions report expectations of lower returns next year. The average Return Assumption for FY 2006 is 8.0%. Larger institutions report higher return assumptions than do smaller institutions, ranging from 8.7% for endowments over $1 billion to 7.3% for those under $10 million. The average Return Assumption for the next three years is 8.3%, ranging from 8.8% for endowments over $1 billion to 7.7% for those under $10 million.
Return Assumptions for Next Three Years
Numbers in Percent (%)
|
|
Total Institutions |
Over $1 Billion |
$501 Million - $1 Billion |
$101- $500 Million |
$51 - $100 Million |
$10 - $50 Million |
Under $10 Million |
|
Base: Total |
729 |
40 |
42 |
197 |
104 |
255 |
91 |
|
Less than 5% |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
5.0 – 5.9% |
3 |
0 |
0 |
3 |
1 |
4 |
8 |
|
6.0 – 6.9% |
7 |
5 |
12 |
7 |
9 |
6 |
8 |
|
7.0 – 7.9% |
11 |
3 |
14 |
11 |
12 |
15 |
5 |
|
8.0 – 8.9% |
25 |
28 |
33 |
28 |
24 |
25 |
16 |
|
9.0% and over |
15 |
20 |
12 |
19 |
15 |
13 |
7 |
|
Do not have 3-year return assumptions |
31 |
34 |
21 |
27 |
28 |
30 |
46 |
|
No answer/uncertain |
8 |
10 |
8 |
5 |
11 |
7 |
10 |
|
Average |
8.3 |
8.8 |
8.2 |
8.4 |
8.4 |
8.2 |
7.7 |
79 Institutions
Asset Allocation
Average allocations showed slight changes in FY 2005 from FY 2004. Overall allocations in FY 2005 were: domestic equity (28% vs. 31% the previous year), fixed income (16% vs. 15%), international equity (18% vs. 16%), alternative strategies (35% vs. 34%) and cash/short term (3% vs. 4%).
The 2006 CBS institutions as a whole reported very modest changes within their domestic equity holdings in FY 2005, increasing large cap (49% vs. 48%) and reducing mid cap (12% vs. 13%), while small cap remained stable at 19% and indexed equities (passive/enhanced) remained unchanged at 20%. Within fixed income, the 2006 CBS institutions increased domestic bonds (81% vs. 77%), reduced high yield bond allocations (10% vs. 14%) and made modest changes to global bonds (3% vs. 4%) and international bonds (6% vs. 5%).
Comparison of Asset Allocations for Total, Top Decile and Top Quartile Performers for Fiscal Years 2003, 2004 and 2005
Numbers in Percent (%)
|
|
Total Institutions |
Top Decile |
Top Quartile |
|
Number of institutions |
657 |
707 |
729 |
66 |
67 |
66 |
159 |
163 |
164 |
|
|
‘03 |
‘04 |
‘05 |
‘03 |
‘04 |
‘05 |
‘03 |
‘04 |
‘05 |
|
Asset class |
|
|
|
|
|
|
|
|
|
|
Domestic equity |
32 |
31 |
28 |
21 |
27 |
20 |
22 |
29 |
22 |
|
Fixed income |
19 |
15 |
16 |
20 |
14 |
15 |
20 |
13 |
15 |
|
International equity |
14 |
16 |
18 |
15 |
18 |
19 |
15 |
18 |
18 |
|
Alternative strategies |
33 |
34 |
35 |
44 |
36 |